Expert Views: India's economy grows 7.2 percent in Oct-Dec

6 Min Read

MUMBAI (Reuters) - India’s economy grew a strong-than-expected 7.2 percent in the three months ending in December from a year earlier, faster than an upwardly revised 6.5 percent in the previous quarter, government data showed on Wednesday.

FILE PHOTO: Ford cars are assembled at a plant of Ford India in Chengalpattu, on the outskirts of Chennai, India, March 5, 2012. REUTERS/Babu/File Photo

Analysts polled by Reuters had forecast an annual growth of 6.9 percent in the quarter.

“The second advance estimate of gross value added for FY18 at 6.4 percent compares with RBI’s expectation of 6.6 percent, although it is unlikely that this will mean a downward revision to their FY19 growth estimate of 7.2 percent.

“In terms of monetary policy committee, we believe the Reserve Bank of India will get progressively more comfortable that the recent recovery has firmer foundations, even as risks of stronger acceleration appear weaker given stress in banking sector and higher crude prices.

“Expected stronger growth in FY19 should help RBI start to tackle building inflation pressures more swiftly.

“RBI’s inflation assumptions for September-March 2018/19 need to be revised higher, and we believe monetary policy tightening would need to start simultaneously for monetary policy committee to not be perceived to be behind the curve.

“Growth momentum in Q3 looks realistic for agriculture but a bit excessive for manufacturing and a few services.

“Perhaps the growth is getting exaggerated due to the statistical base effect as growth had collapsed in Q3 of FY17 due to demonetisation.

“A significant sequential pick up in private consumption could be on the back of improving rural incomes and the Pay Commission awards, but a pick-up shown in fixed capital formation is not visible on the ground.

“Moreover, the recent developments like more stringent NPA guidelines and unveiling of scams would reduce the lending capacity of banks, and to that extent, growth may suffer.”

“Higher oil prices and increased pressure of market borrowings from both the central and state governments have already increased the cost of borrowings via bond markets and this is likely to hit private investment and growth further.

“I expect GDP growth for 2018/19 at 6.8 percent and I expect RBI to get into a longer pause, though its tone will remain hawkish. I expect both growth and inflation to slow down in second half of FY19 due to several domestic and global factors.”

GAURAV KAPUR, CHIEF ECONOMIST, INDUSIND BANK, MUMBAI

“The number to look at would be the GVA number, and GVA growth is largely in line with overall expectations and in line with what the monetary policy committee has been pencilling in.

“It therefore doesn’t really change the narrative for monetary policy. The case for a prolonged pause remains until there is clarity on the inflation risks.”

“The GDP growth has been driven by a strong pick up in investments in third quarter. Investments, which grew around 6.9 percent in Q2, jumped to 12 percent. At the same time, there is a huge jump in valuables as well. The question is how do we sustain that investment growth.

“We expect the Reserve Bank of India to continue to be on hold. A change in their stance will depend on how the monetary authority looks at inflation panning out in the next 3-4 quarters.”

SHUBHADA RAO, CHIEF ECONOMIST, YES BANK, MUMBAI

“All three sectors - agriculture, industry and services - have accelerated in the third quarter.

“Importantly GST disruption is seen waning as borne out by manufacturing sector growth at 8.1 percent in October-December vs 6.2 percent in July-September.

“Construction, government services and agriculture have led the growth in the December quarter. Broadly, the numbers are in line with our estimation for full year GDP at 6.7 percent.

“We have added the risk of a rate hike sometime between June to August 2018 following the recent monetary policy minutes, hinging on the inflation trajectory, and the GDP numbers reinstate our views.”

ANITA GANDHI, WHOLE TIME DIRECTOR, ARIHANT CAPITAL MARKETS, MUMBAI

“Settling down of GST reforms will boost growth in FY 19. RBI has to balance between growth and inflation. The recently released minutes of the MPC’s last policy meeting showed growing concerns of embers over continued inflationary risks arising from high food and crude prices.

“High bad loans and reported fraud in the banking system have already happened. Right measures to eradicate such incidences in future and finding NPA resolution is the path ahead.

“There are concerns of rising fiscal deficit and possibility of interest rates rising further. While all other things seem to be in place, paucity of rainfall can be major risk in next one year.

“Creating jobs for the younger generation will lead to annual growth rate above 8 percent.”

Reporting by Jessica Kuruthukulangara and Tanvi Mehta in BENGALURU and Abhriup Roy and Suvashree Dey Choudhury in MUMBAI; Compiled by Rafael Nam